February 5


​Pension Plans and what is a PPA

February 5, 2023

Having a normal pension plan or PPA pension plan in Spain has many benefits. In this blog we are going explain Pension Plans and what is a PPA, as well as outline the main types of pension and pros and cons of each.


Pension Plans and what is a PPA- through Insurance companies

The two types of pension that can be set up by insurance companies are a normal pension and a PPA.


The main difference between these 2 types of pension is the PPA is guaranteed low risk where as the normal pension will have some risk associated with it.

Due to this the return at the end of the policy is potentially greater with a normal pension. It must be pointed out there is potential that you will receive less than you invested in the pot with a normal pension depending on the level of risk you signed up to.


The level of risk usually goes from 6 being high risk – high reward, and level 1 being low risk (essentially guaranteed) but with low reward. With the PPA there is no such risk of losing any funds.


Benefits of a medium level risk Pension Plan: 

  1. Professional management: If you use an Insurance Broker your Pension plan will be professionally managed, which can help to ensure that the investments are diversified and managed effectively to maximize returns.

  2. Employer contributions: Many pension plans are funded by both the employee and the employer, which can lead to larger retirement savings for the employee.

  3. Potential for higher returns if you opt for a medium level risk plan: Pension plans often invest in a diversified portfolio of assets, which can lead to higher returns compared to a PPA for example. 


Benefits of a PPA plan
You are probably asking if I go with a PPA – low risk and low return pension what is the point? Why don’t I just take out a savings plan or investment plan? This is a very good question and there are a few reason: 


  1. A savings plan you can access anytime so it is unlikley that you will have the pot of money still available when you retire.
  2. You can offset any type of pension against your taxes. Savings and investment plans can not be offset against your taxes.
  3. We recommend having both types of plans in place, so a pension plan for retirement as well as a savings or investment plan for shorter term gains. 


– New limits for 2023 – The maximum annual amount you can put into a pension is 10,000 euros as a physical person – per year (1500 euros of this you can offset against your tax bill).


Pension plan through a Bank

The main draw back with setting up a policy via your bank is the constant change in plans offered and terms of the pension.


The second draw back is the turnover of staff. Bank managers and staff are usually rotated around different branches so the person who set it up for you will likely not be working in your bank branch in 3 years time. This is important since you will want to discuss the pension and its performance down the line. 


The final drawback of a pension through a bank is the fees applied. Insurance companies will always have lower fees applied to the policy.


Alternatives to a Spanish Pension

If you already have a pension plan in place or are not keen on taking one out there are alternatives. Savings or investment plans are the obvious alternatives and will be a good option. 


In the past Spanish banks rewarded individuals that kept high liquidity and funds in their bank accounts. However due to world wide low interest rates this is not the case any more. In some instances banks will only keep large amounts of funds in a bank account if a high risk investment plan is purchased.


– 2023 UPDATE – With interest rates raising, there is potential that savings plans will become more attractive, with banks offering better returns. 



Key info on normal pensions and PPA pensions in Spain

So now you know the difference between the types of plans available, below are some key details which Pension plans include include:


– You can only cash in the pension at retirement age which is usually between 65 and 67 years old
– The payment when you cash in the pension can be structured into staggered payments to suit your needs or taken in one lump some with no penalty.
– The minimum monthly payment is usually 60 euros per month
– If your circumstances change you can pause the pension
– If you choose to switch company you can do this with a transfer at any point to another Spanish insurer
– You may have more savings than normal at the end of the year and it is possible to pay a one off payment into the pension at any time.


Why you can not rely on on government pensions:

Planning for your future in this modern age has never been so important. Spain in-particular is changing its rules and requirements for the government pension on a constant basis. It is very important to supplement your government pension to provide a safety net for your retirement.


With Spain’s growing population and national debt it is likely that each individual will be paying more into the government pension and will receive less than has been the case in the past. Although there are European countries with more national debt such as France and Italy. These countries have a higher GDP and so you could say Spain is in a worse position.



In summary the government wants to incentivise the population to take out their own pension and we would advise at least having a PPA plan in place or a low risk normal pension plan. Ideally once the plan is in place any extra funds could be put in a savings or investment plan.


About the author

David Bloomfield - Health and Liability insurance specialist

Call me Back